After the Military: Tips for Your Financial Transition to Civilian Life

An impending separation from service may be both exciting and anxiety-provoking for you and your family. Your lifestyle, income sources, and benefits will be changing. Major decisions that may affect your finances include:

To help you prepare for your transition to civilian life, the Department of Defense, along with other agencies, has developed a Transition Assistance Program (TAP) — also called Transition GPS. Most service members who are retiring, separating, or being released from a period of at least 180 days of active duty must participate. This program includes preseparation counseling, briefings, and workshops that cover topics such as education and training, employment and career goals, financial management, and VA benefits. You'll also prepare an Individual Transition Plan.

Having a realistic budget is important. Once you leave the military, it's likely that your living expenses will increase because you won't be receiving tax-free allowances, and costs for insurance, housing, groceries, and other day-to-day expenses may be higher. Preparing a budget that reflects your new sources of income and expenses, and adjusting it when necessary, can help you stay on track as you adapt to your new financial circumstances.

Here are some questions to consider as you prepare your working budget:

Income

Here's a tip: If you're unable to find a job right away, you may qualify for unemployment compensation, but your eligibility may be affected by any retirement or separation pay you receive. Unemployment benefits vary from state to state, so for more information you'll need to contact your local unemployment office.

Expenses

Here's a tip: Have a plan in place to reduce your expenses if necessary. Identify items in your budget that you consider discretionary and would be willing to cut at least temporarily. It will likely be much easier to pay off debt now while you have a steady paycheck from the military rather than later when your job situation might be uncertain.

Some of your costs will be covered through transition assistance (for example, storage and shipment of household goods), but it's likely that you'll have expenses for which you won't be reimbursed, such as housing deposits. Having some savings set aside in a transition fund that you can easily access may help you avoid having to dip into your long-term savings and investments to cover unexpected expenses. It will also decrease the odds that you'll rack up credit-card debt that you'll have to pay off down the road.

Here's a tip: Don't wait until the last minute. Make saving for your transition a priority, and start as far ahead of time as possible to ensure that you have several months of savings set aside to cover transition expenses.

After your transition is complete and your income and expenses have stabilized, update your budget to reflect your new circumstances. It's also a good time to review your financial goals. Now that your focus has shifted from your short-term priorities, you can refocus on pursuing your long-term goals to prepare for your next stage in life.